If you are a finance major, there is no way you are calm right now. Knowing what has happened the past few months you must be shaking with anxiety about the future. Let’s go back and review the events:
March 16th, 2008: Bear Stearns (one of the largest investment banks) is bought by JP Morgan Chase & Co. The deal was orchestrated by the government after Bear Stearns’ shares declined sharply, which lead to a lack of confidence in the company.
Why was it important? These were the first signs of economic turmoil following the first reports of the home mortgage crisis.
July 17th, 2008: The government seizes IndyMac Bank due to rising foreclosures and decreasing home prices.
Why was it important? This was the first government seizure of any publicly traded bank in America.
September 7th, 2008: The government takes over Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) in order to stabilize the downward spiraling housing market.
Why was it important? These 2 organizations own about half of the mortgages in the United States. A once publicly traded company was now in the hands of the U.S. government.
September 10th – September 14th, 2008: Lehman Brothers (another financial-services firm) goes up for sale after reporting $4 billion in losses. The government decides not to bail out Lehman Brothers. Due to this, Merrill Lynch & Co. decide to be bought out by Bank of America.
Why was it important? When one of the largest firms in financial services says it is up for sale, that is not a good sign. It was clearly a sign that they needed help from the outside but the U.S. government was unwilling to buy them out. This made the government’s stance unclear because they bought out IndyMac but not Lehman Brothers. Merrill Lynch also didn’t want to be in a position where they had to depend on the government to bail them out of problems because they were unsure of what action the government would take. That is why they decided to let another bank buy them out before they would have to declare bankruptcy or ask for help from the government.
September 15th, 2008: Lehman Brothers declare bankruptcy. This leads to people looking around to find the next failure waiting to happen. All fingers point at AIG due to their falling stock prices.
Why was it important? The government was unwilling to help Lehman Brothers and they were forced to declare bankruptcy. Many people lost their jobs, lost their investments, lost their money. Also, now that people had identified AIG as the next to fall, customers of AIG were now nervous about their securities.
September 16th, 2008: The government issues and $85 billion emergency loan to AIG in order to help the ailing company. Their argument for this was that the failure of AIG would lead to more problems in an already delicate market.
Why was it important? Once again, the government gives reasoning for their actions but fail to provide logical reasoning as to why AIG was helped but not Lehman Brothers. The government slowly starts taking over the financial sector in America.
September 25th, 2008: Washington Mutual is run out of business due to the large amount of bad debt in mortgages.
Why was it important? WaMu becomes the largest bank to fail in American history. People start to wonder whether their bank will go down or not. People always say that banks are “too big to fail,” but if a bank like WaMu can fail, who says that JP Morgan and Bank of American can’t?
September 29th, 2008: The House defeats the $700 billion legislature that would provide emergency funds. This leads to a 780 point drop in the Dow Jones for the day.
Why was it important? The Senate had approved of the bill, but the House would not let it pass. This meant that the crisis would stay just the way it is. Also, the Dow’s drop of 780 points is the most EVER in one day… EVER…
So what does this all mean for us? To put it into a few words, lots and lots of inflation, loss of confidence in our banking system and a difficult time finding jobs in financial markets.
All I can say is, if you are a senior finance major, better pick up something else. But the good news for people who are just starting their college careers in finance is that there will be a void when the financial markets do stabilize. And this should bring about lots of opportunities for people who graduate in a few years when they want to bring the economy back to the days of the early 2000’s.
4.9 rpg and 2.2 apg don’t scream Hall of Fame (HOF), but you cannot deny his ability to make other teams squirm with anxiety whenever he takes the court in a playoff game.